Tax Type
Corporation Income Tax
Description
ACRS modifications
Topic
ACRS Modifications
Date Issued
10-26-1988
October 26, 1988
Re: §58.1-1821 Application; Corporation Income Tax
§58.1-323 ACRS Modifications
Dear********************
This is in response to your letter of June 22, 1988, in which you applied for correction of an assessment of corporation income tax.
Facts
During the fiscal year ended June 30, 1984, the taxpayer was liquidated and was required to "recapture" ACRS deductions on its federal return. on the taxpayer's Virginia return, it claimed a subtraction of 30% of the "recaptured" ACRS on the theory that this amount had already been subject to tax in prior years. The auditor disallowed this subtraction.
Discussion
When the return was filed, Virginia law provided that the ACRS additions made by a taxpayer would be recovered over a five-year period beginning with the first fiscal year beginning on and
after January 1, 1984. The law did not authorize a taxpayer to claim any subtraction in fiscal year ended June 30, 1984. Therefore, the assessment was proper.
The 1987 General Assembly restored full conformity to federal ACRS deductions effective for taxable years beginning on and after January 1, 1988, as part of the Virginia Tax Reform Act of 1987 (1987 Acts c. 9, HB 1119). Therefore, Virginia taxpayers will no longer be required to make an addition equal to 30% of their federal ACRS deductions.
The act added Va. Code §58.1-323.1 which permits taxpayers to subtract the outstanding balance of excess cost recovery (i.e., additions less allowable subtractions from 1982 through 1987) over two taxable years (for individuals) or five taxable years (for corporations). In 1988, the General Assembly amended this section to deal with final returns filed before 1988 (1988 Acts c. 773, SB 441).
Taxpayers who file a final federal and Virginia return for a taxable year beginning before January 1, 1988, may apply for a refund of the outstanding amounts of ACRS additions which have not been subtracted. The taxpayer qualifies for the relief allowed under this act because it filed a final return for a taxable year beginning before January 1, 1988.
Determination
Since the 1988 act became effective July 1, 1988, we will refund the tax portion of the assessment because it is due solely to claiming the "outstanding amounts of excess cost recovery" which have not been previously subtracted. The interest portion of the assessment will not be refunded because at the time the return was due the tax on ACRS additions was required by law and the department was not authorized to make a refund until the 1988 law took effect. However, no interest will be paid on the refund
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner